The difference between Palantir and other AI-enabled database competitors is that Palantir is able to go further in answering questions that a model would struggle to answer. Traditional business intelligence companies require a complete data set whereas Palantir is able to tackle situations where there is not a complete data set. You can think of the competitive advantage as being actionable depth, which Palantir has described as “the reasoning that goes into decision-making, not just data.”
Palantir’s Artificial Intelligence Platform (AIP) integrates generative AI with operational data and workflows, and when combined with Palantir’s other platforms Foundry and Apollo, it provides an AI service mesh that can run hundreds of microservices, scale compute through its Rubix engine and orchestrate updates through Apollo.
Additionally, Palantir’s knowledge graph referred to as Ontology is a distinct advantage. The graph offers better context than a large language model would on its own – or as Palantir states, it’s “the reasoning that goes into decision-making.” Palantir made some key upgrades to AIP with the introduction of AI forward-deployed engineers (FDEs) and AI Hivemind, and brought Ontology to the edge, allowing it to be deployed on mobile devices.
Fueled once again by AIP, Palantir delivered one of the best reports across tech in the third quarter, with revenue accelerating nearly 15 points sequentially to almost 63%, with strong growth in key metrics and a 50 point acceleration in US Commercial revenue since the start of the year. We break this down and more below.
New Product Upgrades – AIP FDEs, Hivemind and Edge Ontology
Palantir made a handful of upgrades to its AIP and Ontology in Q3, unveiling AIP forward-deployed engineers (FDEs) in beta, AI Hivemind, and Edge Ontology, all aimed at accelerating AI deployment with its customers.
AI FDEs build upon Palantir’s take on software engineers, the forward deployed engineer, which sits at the intersection of software, sales, and platform engineering, embedding within customer teams to closely develop and tailor AI software and solutions directly to their needs. Palantir now brings this to AIP, with the AI FDEs being its AIP-native deployment AI agent that “understands how to connect to data sources, how to integrate and transform data, how to create ontologies and functions and build applications.” AI FDEs function in conversational commands, allowing customers to easily turn requests into autonomously-executed Foundry operations.
Palantir says the AI FDEs are increasing productivity for customers, noting that at one customer, two of its human FDEs utilized AI FDEs to migrate a legacy data warehouse in five days, a task which Palantir says would normally have taken up to two years.
AI Hivemind is a new tool within AIP that Palantir says will orchestrate a “swarm of dynamically generated agents to tackle hard problem solving, idea generation refinement and executable proposal generation that is integrated with Ontology and therefore aware of the context of your enterprise.” Palantir says the tool was developed to help government clients solve extremely complex problems with classified data (such as generating intricate mission plans), but it has already been tested by commercial clients to help “identify bottlenecks to their supply chain, proactively developing possible solutions and then leveraging AI FDE to code that up into an actual solution.”
Edge Ontology is Palantir’s new, lightweight Ontology that allows it to run on mobile devices, letting customers build mobile apps or embedded software for hardware such as robots or drones. Edge Ontology is also fully integrated with AIP. While Palantir was very thin on details, it’s likely tied to its existing partnership with Qualcomm, where the two brought Ontology to edge devices powered by Qualcomm’s Dragonwing processors. This partnership focused on the industrial, auto and manufacturing sectors, and remote and offline environments.
Together, the new product upgrades reflect Palantir’s dedication to continuously improve its platform and help customers consistently solve problems daily. Financially, the three new upgrades can help accelerate deployments and adoption of AIP, help secure more (and potentially larger) contracts, and tap into new markets such as IoT at the edge.
Financials
Revenue Accelerates Nearly 15 Points to 63% YoY, Up 18% QoQ
Palantir reported $1.18 billion in revenue in Q3, up an impressive 18% QoQ and beating estimates by 8.4%, driven by unwavering momentum in US Commercial. On a YoY basis, revenue growth accelerated 14.8 points to 62.8% YoY, the largest sequential acceleration to date and marking Palantir’s highest growth rate since going public. Over the last nine quarters, topline growth has accelerated ~50 points, from just 12.7% in Q2 2023, a rare feat to accomplish.
For Q4, Palantir guided for revenue up 60.6% YoY to $1.327 to $1.331 billion, well ahead of estimates for 44.2% growth to $1.19 billion. While this does represent a marginal deceleration at face value, this sequential deceleration is in line with trends from previous quarters.
For the full year, Palantir raised its revenue outlook to $4.396 to $4.400 billion, pointing to YoY growth of 53.5% at midpoint, a sharp acceleration from 29% growth in 2024. To put in perspective the strength of this acceleration, Palantir had initially guided for just 30.9% growth to $3.76 billion in revenue back in Q4 2024; growth is now more than 22 points faster.
Impressive 28 Point Acceleration in US Commercial to 121% YoY
Palantir’s US Commercial segment is generally seen as the primary vector for its AIP-driven growth, with robust momentum only accelerating further in Q3.
US Commercial revenue grew 29% QoQ and 121% YoY to $397 million in Q3, accelerating from 93% YoY growth in Q2. Since the start of the year, US Commercial growth has accelerated 50 points, and since the start of 2024, growth has accelerated 81 points.
For the full year, Palantir significantly boosted its US Commercial growth outlook to >104% YoY, up from 85% previously. This corresponds to revenue of $1.433 billion, up from $1.302 billion previously.
Key metrics for the segment were very strong: TCV closed (total contract value) surged 342% YoY to a record $1.31 billion, and TTM TCV was $3.8 billion, up 217% YoY. Remaining deal value (RDV) rose 199% YoY and 30% QoQ to $3.63 billion. US Commercial deals closed of >$1 million were up 2X YoY and deals closed of >$5 million were up 5X YoY.
Key Segments – Government and Commercial Revenue
Q3 also marked the first time Commercial growth outpaced Government segment growth since Q2 2024, fueled by the robust momentum and sharp acceleration in US Commercial as discussed above.
Commercial revenue rose 21.5% QoQ and 73% YoY to $548 million, a 26 point acceleration from 47% YoY growth last quarter. International Commercial revenue was ~$151.7 million in Q3, up ~10% YoY and 5% QoQ.
Government revenue rose 14.5% QoQ and 55% YoY to $633 million, a six point acceleration from 49% YoY in Q2. Government remained Palantir’s largest segment at ~53.6% of revenue. US government revenue was up 52% YoY and 14% QoQ to $485.9 million, while International Government revenue was ~$146.8 million, up nearly 66% YoY and 16% QoQ.
Other Key Metrics – NRR Expands, Strong Customer Growth
Palantir had a handful of other strong key metrics that support strong revenue growth continuing despite the sharp acceleration the company delivered in Q3.
Palantir’s net retention rate (NRR) expanded six points sequentially to 134%, and over the past two years, NRR has risen an impressive 27 points, with Palantir noting that AIP is continuing to drive existing expansions and new customer conversions. Palantir also continued to emphasize that NRR does not include revenue from new customers acquired over the last twelve months, and accelerating momentum in quarterly deals closed supports more upside to NRR in 2026.
Moving to deals closed, Palantir closed 201 deals of >$1 million in Q3, up 30% QoQ; this was a sharp acceleration from 13% QoQ growth in Q2. Palantir also signed more deals in all of its cohorts (>$1M, >$5M and >$10M) in Q3 than it had in Q2.
To put deal growth in the context of NRR, Palantir has signed 629 >$1M deals over the last twelve months, up more than 61% from 390 in the same period last year – with none of these new deals appearing yet in NRR.
However, there were a few blemishes within key metrics – billings growth decelerated from 53.5% YoY in Q2 to 48.8% YoY in Q3 to $1.23 billion, with QoQ growth also decelerating from 21.8% QoQ to 11.2% QoQ. RPO growth decelerated from 77% YoY and 27% QoQ in Q2 to 66% YoY and 8% QoQ in Q3 at $2.60 billion.
Margins – Q3’s Rule of 40 of 114%, from 94% in Q2
Margins strengthened considerably in the quarter, with adjusted operating margin surpassing 50% with more expansion guided for Q4. Palantir’s Rule of 40 score (revenue growth + adj operating margin) expanded to a wild 114%, up from 94% last quarter and 68% last Q3.
Gross margin was 82% in Q3, up one point QoQ and two points YoY, while adjusted gross margin was 84%, up two points YoY and QoQ.
GAAP operating margin was 33%, an impressive 6 point QoQ and 17 point YoY expansion. Adjusted operating margin was 51%, breaking past 50% for the first time and up 5 points QoQ and 13 points YoY. For Q4, Palantir guided for adjusted operating margin to be 52%, showcasing its ability to drive strong margin expansion alongside swift revenue acceleration. Full year adjusted operating margin guidance was raised from 46% to 49%.
GAAP net margin was 40%, up 7 points QoQ and 20 points YoY. Adjusted net margin was 45%, up 5 points QoQ and 12 points YoY. Palantir is one of the few, if not only, tech companies to have 40% GAAP net margins with revenue growth accelerating above 60%.
Earnings
Palantir reported $0.18 in GAAP EPS in the quarter, up 200% YoY, while adjusted EPS was $0.21, beating estimates by 25.5% and rising 110% YoY. Palantir did not provide a specific guide for EPS for Q4, though current estimates are pegged at $0.12 in GAAP EPS and $0.22 in adjusted EPS, up 300% YoY and 57% YoY, respectively.
For FY25, Palantir is expected to earn $0.72 in adjusted EPS, up nearly 76% YoY, before slowing to 39% growth to $1.01 in FY26.
Cash
Cash flows were strong, though cash flow margins dipped on a YoY and QoQ basis. Operating cash flow was $507.7 million for a 43% margin, shrinking from a 54% margin in Q2 and 58% in the year ago quarter.
Adjusted free cash flow was $539.9 million for a 46% margin, down from 57% in Q2 and 60% in the year ago quarter. Palantir raised its adjusted FCF guidance for the year to $1.9 to $2.1 billion, or a 45.5% margin, up from a 42.8% margin previously.
Cash and equivalents totaled $6.4 billion and debt remained zero.
Valuation
Valuation is the crux for Palantir as the stock trades at 100x forward revenue, nearly triple its five-year average of 36x and in rather uncharted territory for software stocks. On the bottom line, Palantir trades at 256x forward adjusted EPS despite a >40% margin, more than double its average 109x multiple.
The valuation with Palantir is a gamble as the company is attempting to set a new bar for AI software, with >100x forward sales multiples only achieved for short fashion in 2021 for a handful of prior market darlings, whose stocks have yet to return to those prices. This elevated valuation may also present a risk if/when the company reaches peak revenue growth as comps will quickly get tougher.
Conclusion
Palantir delivered one of the strongest earnings reports in all of tech in Q3, with revenue growth of nearly 63% and a strong 28 point acceleration in its AI-driven US Commercial segment. Since the start of 2025, revenue growth has accelerated more than 23 points, with US Commercial revenue accelerating 50 points. Trends in other key metrics such as NRR and quarterly deals closed remain robust, although billings and RPO growth decelerated in the quarter. However, what Palantir has to contend with is an extended valuation, in uncharted territory even by its own measures, and where the market will ultimately price its shares.
Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund do not own shares in PLTR at the time of writing and may own stocks pictured in the charts.
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